All Forum Posts by: Adam Cole

Why not just sell it?

If your all in investment is $228k and you're estimating that it could sell for ~$330k, then I would offload that immediately. Especially with the cash-flow only being $100 per month. If you can net $75k after all of your expenses are paid... you could move on to the next project with your pockets busting. However, if you chose to rent it out, it would take you 62 years to make that amount of money. 

So if you could provide some suggestions to these "incompetent" business owners, what would it be? I understand creating awareness, but just saying a bunch of criticisms without any potential solution is not very useful.

Doing a split partnership (50-50) in a LLC is what my father and I did. The problem that we are encountering now is with refinancing our properties. In order to refinance to a specific person, we need to have a majority shareholder in the company (51-49%). If you have a clear division where 1 person controls the LLC then you can transfer the properties in and out (quitclaim deed) of the company in order to refinance.

Also, instead of being eligible for only 10 mortgages, since there are now two distinct entities, you become eligible for 20 mortgages.

Funny enough I have been trying to refinance 5 properties using a portfolio loan. This is classified as a commercial loan as opposed to a residential. The benefit is that you can put this loan directly into a LLC as opposed to have a person attached to it. But the downsides, at least from what I've gathered, is that this loan carries higher interest rates (thank you Freddie and Fannie) and is a 15 year loan with a 5 year amortization period in which you'll have to refinance every 5 years. Your payments will be much higher, and if something were to go wrong, you'd have one heck of a balloon payment.

Secondly, if you ever wanted to sell one of the properties, you'd have to work with the bank to release one of the homes from the loan which can be quite complicated and capital intensive. 

In my opinion, I would rather have 5 mortgages and pay the points for it. It seems much less complicated and you'll be eligible for lower interest rates and a 30 year term.

From my ape-like mind, I have learned that debt is your friend. Especially at low rates. Because in reality, the tenant renting your place is paying the debt down as opposed to you. So I agree with Joe, you're looking at this from a homeowners perspective as opposed to an investors perspective. You can always refinance to pull cash out down the road, but maximizing cash flow is a very common goal. However! If your goal is to have paid off properties, then you're going to have to live with less cash flow. But if you look at your return on your investment that includes both cash flow and debt paydown, you should see a similar percentage.

It all depends on what your personal goal is. Monthly income is mine, so I want to maximize my CF

 Hi Will!

You would be correct to answer your loan type question. The main concern I had was transferring ownership from a 50-50 split LLC. Since there is not a clear majority owner, I didn't know if that would present roadblocks during the quitclaim deed process of pulling it out of the LLC in order to refinance.

Hello everyone!! 

We just closed on our 5th investment property and our first long term rental. The 4/5 are short term student rentals located in Flint, Michigan. Currently we don't have loans tied to any of the properties and we're planning to pull out cash in order to fund new projects.

All 5 properties (worth ~$500k) are currently held within our LLC. In order to mortgage the properties (without using a commercial loan), I have been told that I will need to pull them out of the LLC (w/ a quitclaim)...and then finance them....and then use a quitclaim to put them back into the LLC.

My main question is can I personally guarantee the mortgage so that I don't have to swap ownership in and out of the LLC? I have that question sent to my lender but wanted to ask BP as well. The other roadblock I foresee is that the LLC is a 50-50 split ownership, so we are looking into restructuring it as a 51-49 split so there can be a majority owner for the mortgage to be tied to. Has anyone else found themselves fighting a similar roadblock?

I know that's a lot, but thank you for sticking with me and providing any help you can

Adam

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Pontiac.

Purchase price: $130,000
Cash invested: $130,000

Current rental income : $700 (single unit occupied)
Expected rental income once renovations are complete : $1900 (both units occupied)

Renovation schedule:
1) Add 1/2 bathroom and remove useless coat closet
2) Rebuild kitchen and update with new cabinets, counters, and LED recessed lighting
3) Redo parking lot (big money investment) and refinance property

If the property appraises for +$170k then we will turn this into a flip and move onto the next one!

What made you interested in investing in this type of deal?

I saw the potential that property had and the price-point showed promise in future cash flow

How did you find this deal and how did you negotiate it?

It was found on Redfin and negotiated through the traditional method. We had originally offered $140k but we were able to buy it for $130k after several repairs were noted

How did you finance this deal?

Cash initially and we are currently looking into cash out refi options

How did you add value to the deal?

Renovated kitchen
Added 1/2 bathroom
Planning to lay new concrete
Improved the main bathroom with updated fixtures

What was the outcome?

We will see!!

Welcome to the group and to the wonderful world of real estate and BP! The amount of information and helpful people in this group is staggering. 

That's some great advice and was my next plan! Thank you for your input :)

Adam